NEW YORK -- Federated Department Stores Inc. made a surprise move Sunday toward acquiring its archrival, R.H Macy & Co., Inc.
Federated has bought half of the secured claim of Macy's single largest creditor -- Prudential Insurance Co. of America -- making Federated a major player in Macy's Chapter 11 reorganization.
The total purchase is valued at $449.3 million, with Federated paying $109.3 million in cash and the remainder due in three years. Federated has the option of acquiring the remaining 50 percent within three years.
Although at this point Federated is buying debt, upon a reorganization plan and Macy's emergence from Chapter 11, it will likely turn into equity.
"Prudential owned approximately 15 percent of the total debt and 36 percent of the secured debt," said a Federated spokesman. However, it is unclear how these percentages will translate in a reorganization plan.
This sneak attack gives Federated a foothold to acquire a major chunk of Macy's down the road, and industry observers say it could block out other potential Macy takeover candidates such as Dillard's and May Co.
Federated stated Sunday that it acquired half of the Prudential claim "with the ultimate objective of working toward a combination of Federated and Macy's into a single nationwide multi-billion dollar department store operation, with the potential for greatly enhanced operating efficiencies."
Allen Questrom, chairman and chief executive officer of Federated, said in a statement: "We are enthusiastic about the prospect of creating an exciting new department store company that can offer enhanced value and long-term growth potential to Federated's shareholders, as well as to Macy's creditors, to our customers and all of our combined stakeholders."
"What we are trying to do is get a place at the table as a secured Macy's creditor," added a Federated spokeswoman. "We will have some say in the reorganization through the bankruptcy process, with which we are thoroughly familiar." Federated emerged from a two-year Chapter 11 reorganization in February 1992.
Myron E. Ullman, chairman and chief executive officer of R.H. Macy & Co., said he first heard about Federated's move Sunday afternoon.
"From our point of view, Macy's has made good progress within our reorganization. It doesn't surprise us to learn of the interest in the company. Macy's is a great franchise.""They say it's not hostile," said Ullman. "It's premature for us to judge. I don't see it as a hostile move."
Federated said it's been in conversations with Prudential "since this fall," according to the spokeswoman, adding: "Macy's didn't know about it."
However, Robert Miller, counsel for Macy's bondholders' committee, said, "I think it's a very curious and unusual move. I don't know whether to interpret it as hostile or not. Federated did it without any indication to Macy's or to its creditor groups."
In October, Macy's and Federated settled a three-month battle over Roger Farah. Farah, former chairman and chief executive officer of Federated Merchandising Services, was named Macy's president and chief operating officer, effective July 1, 1994. Federated sought to thwart the Farah appointment, claiming he was bound by a Federated contract. The two firms settled when Macy's agreed to pick up Farah's $1 million Federated salary through June 30, 1994. The agreement also allowed Federated to file a $3.3 million claim against Macy's for the SABRE computer system Macy's is using.
A Federated spokeswoman said the Farah episode was "totally incidental" to the latest move.
Ullman said Macy's has secured claims of more than $6 billion, and Federated's will ultimately account for half a billion dollars.
"We recognize [Federated's] desire, but it's premature to comment on whether it's appropriate for Macy's. Our responsibility is to maximize the value created by restoring Macy's to profitability."
Macy's entered Chapter 11 in January 1992. The company is negotiating with its creditors to determine the size of the assets and how they will be appropriated.
The Prudential-Macy's loan bears interest at the rate of 12 percent. Taking into account the accrued interest on the loan since the filing, the actual amount of the Prudential claim against Macy's was more than $1 billion.
The loan is collateralized by mortgages on 70 of Macy's 110 department store properties.
Questrom said, "We hope this investment gives us a platform to explore with Macy's management and other constituents possible alternatives that might provide the maximum value for Macy's creditors, while at the same time enhancing long-term value for Federated's shareholders and for our customers."Questrom added that while there can be no certainties in the Chapter 11 process, "we are satisfied that the claim we purchased will prove to be a sound investment for Federated."
A Federated spokeswoman added, "We don't anticipate there will be any unresolvable antitrust problems."
Federated operates 219 department stores under the names of Bloomingdale's, Abraham & Straus, The Bon Marche, Burdines, Goldsmith's, Jordan Marsh, Lazarus, Rich's and Stern's. Federated's volume is estimated at $7.2 billion. Macy's, whose 110 stores operate under the names Macy's, Bullock's and I. Magnin, does approximately $6.3 billion in volume.
Macy's and Federated have been at swords' points for a long time. Back in 1988, Edward Finkelstein, former chairman of Macy's, entered a bidding war with Robert Campeau to acquire Federated. Campeau won, but sold Federated's Bullock's and I. Magnin divisions to Macy's for $1 billion.
The debt from the Bullocks-Magnin acquisition is said to be one of the causes of Macy's Chapter 11 filing.
Since the acquisition, the West coast has been a continual problem for Macy's. It has closed 11 Magnin units there, and currently operates 13.
Reports have long been circulating that Questrom, who formerly headed Bullock's, would like to have Bullock's back under Federated's wing. Federated doesn't have a California presence.
"The move is just not geography," said Isaac Lagnado, principal in Tactical Retail Solutions. "Questrom has been moving toward centralized buying. Macy's is a natural fit for them, with Macy's emphasis on moderate price points and the home."
"They say it's not hostile. It's premature for us to judge. I don't see it as a hostile move." -- Myron E. Ullman, R.H. Macy & Co.
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews